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Last Monday the company announced it will begin selling its own tablet computer, Microsoft Surface, later this year -- thus competing with hardware partners such as Hewlett-Packard . Reviews of the device were generally very favorable, with people calling Surface beautiful and "very Apple-like."

Although Microsoft shares rose 2% for the week, to $30.70, I think the new initiative may hold back its shares in coming months. I'll explain why, but first, let's understand what just happened.

Microsoft did little to tame speculation about competition. CEO Steve Ballmer, presenting the Surface on stage, talked out of both sides of his mouth.

He said Microsoft remains committed to its hardware partners. But he also took a page from the late
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13.778718258766625Market Cap
597858946891.729
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2.000877577885037% Rev. per Employee
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(AAPL) founder, Steve Jobs, declaring that people's interactions with machines are better when "all aspects of the experience -- hardware and software -- are considered in working together." That's a major shift from Microsoft's classic approach of selling Windows as the software engine anyone can license to make a great machine.

A person close to Microsoft tells me competition may be more limited than it appears. Microsoft wants to push the entire Windows "ecosystem" forward, the person tells me, to prompt hardware partners to design better machines.

Sure, for now. Rick Sherlund, who follows Microsoft for Nomura Equity Research, believes competition between Microsoft, HP and Dell will prove all too real, because "we are in a new world," as he puts it. Microsoft, he told me last week, cannot afford to leave its battle against Apple's iPad to the fumbling of the PC makers.

"The issue is Microsoft is competing with Apple here," says Sherlund. "Microsoft sees that Apple is world-class in what they do. Microsoft has little choice but to do what they must" to make sure someone has world-class hardware in the Windows camp.

Sherlund expects
Google
(GOOG), which bought Motorola Mobility, to unveil its own branded tablet as soon as this week, putting Microsoft up against potent hardware and software integration from yet another giant. Sherlund thinks it's possible Microsoft may also sell a phone under its own brand at some point, putting it into competition with
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6.269112554112554% Rev. per Employee
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(NOK), its partner. As for Dell and HP and the rest, "they deserve to lose if they aren't able to do better than Microsoft," says Sherlund.

TO UNDERSTAND WHAT'S GOING ON, consider the fact that Microsoft faces both promise and peril in personal computers amidst the onslaught of tablets and cellphones.

Newer devices clearly are stealing sales from PCs, either by delaying purchases in favor of new toys, or convincing some buyers they can do more of their work on a phone or a tablet going forward.

Dell CFO Brian Gladden said as much last month, remarking during the company's earnings report that "growth in the PC market has clearly been lower than what we would have expected a couple years ago…clearly some of that is alternative mobile devices."

This erosion of the PC comes just as Microsoft is preparing to introduce Windows 8, and it's no fun to have your market eroding while you're trying to sell renewals.

On the other hand, the tablet computer is a young product category, and still rather undefined. With Apple having most of the sales, it isn't even clear people want a tablet so much as they want an iPad. In any case, they are probably much less wedded to the existing tablets, including the iPad, than they are to their iPhone or their Android phone. So there's an opportunity for Microsoft with Surface to redefine the tablet category to its advantage.

Some Microsoft bulls even think that with Windows already established in personal computers, corporate types will rush in droves to buy a tablet that runs the same Windows software. That view was summed up by Bernstein Research analysts Mark Newman and Mark Moerdler last week. As they wrote in a note to clients, "Microsoft will be the first to offer a single operating system across PCs, laptops, ultra-books, tablets, and Phones and a consistent user interface to their gaming device (Xbox)." All Windows versions on all the devices will be programmed alike, and they will look relatively similar to a user.

Barron's Roundtable member Fred Hickey shares that point of view. There are tremendous compatibility problems when iPads are brought into the enterprise, he argues. IT folks are just itching for something from Microsoft they can deploy instead.

Maybe, although some of that sounds to me like a fantasy.

Tablets and smartphones are proliferating on corporate networks because people are buying what they want and forcing IT to deal with it. Putting that particular genie back in the bottle is going to be hard to do, no matter how good Surface is.

Secondly, people don't buy goods and services because of supposed "synergy." They buy on a case-by-case basis, evaluating the relative merits. That's true among corporate types just as it is among consumers, even when it comes to technology.

Just look at the iPhone and the iPad. They share the same software, and work well together. But in my experience, watching people use those devices, most individuals miss that connection. They like the devices on their individual merits.

At any rate, bully for Microsoft for trying. But what does it mean for their stock and the stocks of PC makers?

I WOULD IMAGINE IT CAN'T be fun to be an HP or a Dell investor these days.

Both companies were already facing an onslaught of cool new computers from Lenovo, Samsung and others, and now they have Redmond to contend with.

For Microsoft investors, the question is one of uncertainty. By getting into the hardware business, has Microsoft created a surer path forward for its shares, or a weaker one?

As I said, Microsoft investors seemed unfazed by either the prospect that hardware partners might be discomfited, or the idea of a new, lower-margin hardware business.

BUT THE BULL CASE FOR MICROSOFT has been the massive upgrade cycle coming with Windows 8 and other products, such as Office 15. Now that the upgrade cycle is clearly tied to bold new hardware innovations, it's less clear Microsoft can expect an automatic lift in Windows sales when the new code makes its debut this fall.

Some buyers may hold off on buying new PCs with Windows 8 until Surface is available. They may then hold off even further to see what, say, HP's response will be.

Hickey, although he has been very bullish on Microsoft, and clearly likes the long-term view, thinks last week's developments make the outlook riskier for the stock.

He trimmed his position in Microsoft shares earlier this year, on broad-based worries about macroeconomic woes, and says that he'd be trimming now if he hadn't previously.

"There is risk I didn't see here before," says Hickey. "It's just not clear what it all means until we get more information," he says of the surprise hardware initiative.

Nomura's Sherlund respects that caution, but he thinks there's actually less uncertainty now.

Reviews of Windows 8 have been mixed to date, and Sherlund thinks the snazzy new hardware will make the case for the new operating system more strongly, thus removing reluctance among some buyers.

Both gentlemen are right, of course. To the extent Microsoft drives hardware innovation, it can only make Windows 8 more appealing.

But I'm with Hickey: The market can be extremely impatient when told to wait for something. I don't know that it's time to sell the shares, but I would be wary of buying any more at this point.

Microsoft will continue to broaden its hardware ambition, and the universe of Windows devices will become more interesting relative to Apple's and Google's wares.

But one byproduct in the meantime will be confusion, among buyers and investors. Until it becomes clear just how well all that activity will drive Windows sales, the stock could see its gains slow in coming months.